New Delhi: The government on Monday announced the appointment of former International Monetary Fund (IMF) chief economist Raghuram Rajan as honorary economic adviser to Prime Minister Manmohan Singh, a few hours after Singh told company chiefs that the global financial crisis is worse than expected and is hurting growth, assuring them of government support to tide over its effects.

“The financial crisis has exacerbated a global downturn that was expected earlier but is now likely to be more severe and prolonged,” Singh told chief executive officers in New Delhi on Monday. “A crisis of this magnitude was bound to affect our economy and it has.”

Click here to watch video

/Content/Videos/2008-11-04/0311_PM Industry meet pkg_MINT_TV_001.flv

09e3e7b4-a9bb-11dd-9e74-000b5dabf613.flv

Rajan is a professor of finance at Chicago University and while his post is a honorary one it will come with the designation of secretary to the Indian government, the equivalent of the chief bureaucrat in a ministry. Rajan is probably the first person to be appointed an honorary economic adviser to the Prime Minister, an official in Singh’s office who did not want to be identified, said. Rajan’s tenure as economic adviser would run parallel to Singh’s term in office, the official said. Rajan could not be immediately contacted for comment.

Rajan was earlier chairman of the Planning Commission’s committee on financial sector reforms and a reported contender for the post of deputy governor of the Reserve Bank of India when a vacancy comes up. His appointment comes at a time when the Indian government is becoming more open to hiring younger economists on short-term contracts from the private sector and multilateral institutions, a former economic adviser at the finance ministry said, asking not to be named.

The current adviser to the finance minister, Shubhashis Gangopadhyay, was brought in this year from India Development Foundation. And the former principal economic adviser in the finance ministry, Jahangir Aziz, was brought in from IMF.

Singh had on 20 October asked the nation to prepare for a “temporary slowdown” of the world’s second fastest growing major economy.

Singh expects growth at 8% this year, commerce secretary G.K. Pillai said. That compares with RBI’s forecast for 7.5-8% in the year to 31 March.

The Prime Minister will set up a panel to address issues raised by industry and arising from the crisis, Union trade minister Kamal Nath said in New Delhi after the meeting.

Those in the panel will include finance minister P. Chidambaram, Nath and Planning Commission deputy chairman Montek Singh Ahluwalia, DLF Ltd chairman K.P. Singh said following the meeting.

Companies sought deeper cuts in interest rates and the amount of money banks need to set aside as reserves to improve the availability of cash.

The infusion of cash from measures taken “will help to provide credit at reasonable rates”, Singh said. “The public sector banks have been instructed to ensure that they act counter-cyclically in this situation to counter the general erosion of confidence.”

The government’s spending on infrastructure, along with increased outlays on health, education, rural areas and farm development, will help maintain growth and economic stability, Singh said, while urging companies not to cut jobs.